Wednesday, 8 January 2014

Indonesia:Sharia banking to moderately grow in 2014

Bank Indonesia (BI) estimates that the sharia banking industry’s total assets will grow by almost 20 percent to reach Rp 283.57 trillion (US$23.42 billion) next year.

It is also prepared to roll out two new regulations on business leveraging that will help the industry achieve the target.

In a seminar on sharia banking held by BI on Monday, BI Governor Agus Martowardojo expressed his optimism that sharia banking would finally account for at least 5 percent of the total national banking assets by the end of 2014.

Currently, sharia banking accounts for 4.8 percent.

“Sharia has proven to be quite resistant to economic crisis as shown right now with its CAR [capital adequacy ratio] of 14.19 percent and gross NPF [non-performing financing] ratio of 2.96 percent. This shows that its performance has been well-maintained even though our domestic economy faced challenges,” he said in his remarks.

The central bank actually set three growth schemes for the industry; “pessimistic” with growth rate of 7.4 percent; “moderate” with 19.4 percent; and “optimistic” with 31.3 percent.

According to Edy Setiadi, BI’s outgoing sharia banking executive director, BI opted for the moderate scheme, supported by the transition of haj funds from commercial banks to sharia banks and the expected capital increase within the sharia lenders.

“They can generate funds for capital from a rights issue or they can get capital injection from shareholders,” said Edy, who would start overseeing sharia banking at the Financial Services Authority (OJK) in January.

He added that the country would see the “pessimistic” scheme realized if external pressures, such as current account and foreign exchange, continued to hamper the country’s real sector, to which sharia was closely related.

On the other hand, the improvement in the real sector and the creation of the long awaited state-owned sharia lender would support the realization of the “optimistic” scheme, Edy said.

As previously reported, the government plans to establish a new, state-owned sharia lender, with an end goal of boosting the country’s Islamic banking market.

Several options are available for its establishment, including the consolidation of existing sharia banks (Bank Syariah Mandiri, BNI Syariah, BRI Syariah) and a sharia business unit of BTN.

State-Owned Enterprises Ministry deputy for business services Gatot Trihargo, who was present during the seminar, said the ministry was still assessing all the options, without offering further details.

To assist banks in reaching the moderate target, BI will introduce two new regulations before the year-end, according to Edy. The regulations, made separately for sharia banks and sharia banking units, will enable them to immediately use the outlets of their commercial parent banks in an effort to reach a wider market.

“They will not be required to establish their own branch office in those regions. That way they will not have to increase their capital as stipulated by the current regulation,” he said.